Market round-up: 25-29 January

Thomas Watts

With the Coronavirus still dictating not only the way people live their life but also market movements, it was somewhat profound to see the two intertwined this week as poor economic data and a certain bricks and mortar computer games retailer wiped any gains 2021 had seen clean away.


This week

The week that was actually started on a firmer footing as European bourses inched higher on Monday, with gains in technology shares and upbeat earnings reports helped investors look past the possibility of extended lockdowns. However, UK equities came under pressure after the Health Minister said on Sunday 77 cases of the South African variant of COVID-19 were detected on domestic shores, causing an emergency landing amongst airline stocks with BA owner, IAG, falling around 4%. 

Surprisingly with all that is going on in the world, it was a relatively overlooked computer game shop that made most of the headlines towards the middle of the week as Gamestop shares rocketed 700% in just a few days. In a more contemporary setting of David Vs Goliath, retail investors swapping stock tips on social media platforms such as Reddit, poured money into buying the company's stock with the aim of pushing up the price and breaking those hedge funds that were short. 

With retail investors in the US feverishly using free trading platforms to bet their stimulus cheques on heavily shorted companies, those on Wall Street were left wondering which company was next, as out-of-favour stocks who had been hit particularly hard by the outbreak of COVID started to soar. Cinema chains, Blackberry and publisher Pearson all saw dramatic price rises; even a tiny West Australian mining company (GME Resources) saw a 50% surge in its share price, for no other reason than its stock ticker was the same as Gamestop’s. 

US shares saw their sharpest falls in three months as a result, amid a squeeze on hedge funds holding short positions in such stocks, with many seeking refuge in safe havens like the US dollar and gold. However, by Thursday shares in Gamestop had tumbled as much as 55% as trading platforms including Robinhood and Interactive Brokers restricted trading in stocks that soared this week in a social media-driven trading frenzy that shook stock markets. 

In a week of heightened volatility, investors barely had time to focus on the fundamentals, with a release of US GDP showing growth slowed to a 4% annualised rate from 33.4% during the previous quarter, broadly in line with the 4.2% consensus forecast. The details showed consumer spending grew 2.5% with reintroduced COVID restrictions in several areas clearly having an impact on consumer’s willingness and ability to spend.

Next week

After a week of heavy losses on most developed stock markets, all but wiping out the rallies seen earlier in the year, the first month of February brings renewed hope that markets should return to some form of normality as various Coronavirus related milestones mark their anniversary. 

The beginning of the week sees us head down under for Australia’s commodity price report. Released by the National Bank of Australia, the figures will detail the change in the selling price of exported natural resources. Not only do commodities account for over half of Australia's export earnings, they act as a proxy for the health of the global economy. With countries set to move out of lockdown in the coming months, we should see increased appetite for natural resources as travel becomes more abundant and factories reopen their doors.  

The middle of the week will see a slew of European PMI data released, showing us just how much those on the continent have been making over the past month. Manufacturing PMI data will be released for the majority of Europe’s major economies, including Germany and France, giving us a more comprehensive view of just how much of an effect the latest round of COVID-19 restrictions have had on Europe’s manufacturing sector. 

The first Friday of the month wraps up the week as always with US Non-Farm Payroll data. A key piece of information when determining the US central bank’s next rate move, the employment data, will be accompanied by Average Hourly Earnings allowing us to gauge future inflation expectations. With infection rates also starting to creep back up across the pond over the last month, it will be interesting to see what kind of effect this has had on hiring rates in the world’s largest economy. 

The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding in January 2021.